POWER DISTRIBUTOR Manila Electric Co. (Meralco) said a weaker peso is putting upward pressure on power generation costs, following the currency’s recent slide to a record low amid geopolitical tensions.
“A depreciation of the peso will put upward pressure on power rates, particularly, the generation charge,” Lawrence S. Fernandez, vice-president and head of utility economics at Meralco, told BusinessWorld.
On March 23, the peso fell to a record low of P60.30 against the US dollar, marking the primary time it breached the P60-per-dollar level, in accordance with data from the Bankers Association of the Philippines.
Mr. Fernandez said nearly 60% of Meralco’s cost of purchased power is dollar-denominated, because it largely consists of imported fuels resembling coal and gas.
These costs are reflected within the generation charge, which generally accounts for greater than half of consumers’ electricity bills.
Earlier this month, Meralco Chairman Manuel V. Pangilinan ordered a review of the corporate’s power supply mix to administer price volatility linked to movements in the worldwide petroleum market.
“We’re optimizing our energy mix and fully leveraging cost-efficient sources, no matter technology. As well as, we’re fastidiously managing our exposure to the WESM (Wholesale Electricity Spot Market), where price volatility is high,” he said in a social media post.
Gas currently accounts for about 60% of Meralco’s power supply, followed by coal at 20-25% and renewable energy at around 10%. The rest is sourced from the Wholesale Electricity Spot Market.
Last month, Meralco raised electricity rates by P0.6427 per kilowatt-hour (kWh) to P13.8161 per kWh for March, driven by higher transmission and generation charges.
Meralco is the country’s largest private electric distribution utility, serving greater than 8.2 million customers in Metro Manila and nearby provinces, including Bulacan, Cavite, Rizal, and parts of Laguna, Batangas, Pampanga, and Quezon.
Other than electricity distribution, the corporate also has power generation interests through its subsidiaries.
Meralco PowerGen Corp. (MGEN), the corporate’s generation arm, said a weaker peso could affect not only generation costs but in addition the broader energy value chain.
“The impact of a weaker peso goes well beyond recent power investments — it affects the whole energy value chain and is broadly inflationary, making imported goods, including fuel and equipment, dearer,” MGEN President and Chief Executive Officer Emmanuel V. Rubio told BusinessWorld.
He added that currency weakness may put upward pressure on rates of interest, increasing financing costs for brand spanking new projects and affecting returns over time.
“At MGEN, we’ve taken a proactive approach to managing these risks,” Mr. Rubio said.
He said the corporate has hedged its exposure to currency risks by largely locking in costs for the MTerra Solar project, an integrated solar facility spanning Nueva Ecija and Bulacan.
Nevertheless, Mr. Rubio said a weaker peso would still feed through to electricity prices, as a lot of the country’s coal and gas supply is imported and dollar denominated.
“Ultimately, while the direct impact on generators is manageable, the broader concern is affordability — particularly as sustained cost pressures may influence customer demand and the general energy mix toward more cost-competitive sources,” he said.
Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc. Hastings Holdings, Inc., a unit of PLDT Useful Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in BusinessWorld through the Philippine Star Group, which it controls. — Sheldeen Joy Talavera